Living within your means
THE global financial crisis has yielded some painful but useful lessons, and one of them is the importance of living within your means.
After more than a decade of frenzied borrowing, waste and extravagance, the developed countries saw their economies hitting rock bottom as foreclosures increased, debt levels skyrocketed and stock markets came tumbling down.
Much of this was due to over-leveraging and a lack of discipline with money. It was basically a case of people having lifestyles they could not afford. So how do we avoid this?
CTLA Financial Planners Sdn Bhd managing director Mike Lee says the starting point is to have a written budget.
Upon receiving salary, Lee says, one should list out the six compulsory items one needs to pay for. This can be insurance premium, home or car instalments, the children’s school fees, and other necessities.
“Once the compulsory items have been listed out, the second tier of expenditure is called the essential items. These are things like food, utilities, housing maintenance and telephone bills,” he says.
The last category of items in the budget are known as the desirables, and these encompass entertainment expenses such as hobbies, going for a movie, gifts for friends and travel costs.
Lee suggests that 20% of the salary (after tax and contribution to the Employees Provident Fund) be allocated for savings and investments.
“Once you have done all that, see how much is left. If there is anything extra, you can spend that money on whatever you want. However, if you earn RM5,000 and your total expenses come up to RM6,000, then cutbacks need to be made,” he advises.
The cutbacks will start with the desirable items. For instance, you may have to spend less on travel or hobbies. If there is still a deficit after this first round of cutbacks, you have to next look at the essential items. “You may want to eat less expensive food, for instance,” he says.
On other tips on cutting back on spending, NewAsia Capital associate director Sherilyn Foong says savings should be made a necessary monthly expense.
“While it may be difficult at first, a little bit of discipline in the initial months will certainly bear long-term fruits, especially when an opportunity for investment or a rainy day crops up.”
Foong, who has been in the financial services sector for several years, also believes that cash is king.
She is not against people borrowing to make good investments, but she thinks it is a bad idea to incur debt on credit card charges, shopping expenses and depreciating assets. To her, it is a no-no to allow such debts to take up a huge chunk of one’s salary.
“Buy with cash. Don’t spend money you don’t have. Avoid using the credit card, and opt instead for a debit card,” she advises.
Alan Voon, an expert on warrants who focuses on investor education, says the key to living within one’s means is to lead a financially responsible life.
“Manage your money wisely so that money does not manage you in return,” he says.
Says Foong: “You should lead a comfortable life. Yes, you can sometimes give yourself a treat and not be such a scrooge, but don’t overindulge either. Don’t spend money just to show off to your peers and to fool them into thinking you are richer than you actually are.”
Voon adds that saving money is important. “However, that alone is not enough because every year, inflation is eating up your wealth. So you need to invest some of your saving as well. Adhere to a long-term investment strategy. That is your only way to fight inflation,” he says.
Another easy way to avoid overspending, according to Foong, is to limit the trips to shopping malls and to not buy on impulse.
“You have a tendency to spend whether its on food, clothes, accessories or non-necessities when you’re at the mall. Once in a while it is okay, but doing it on a regular basis means digging deeper into the kitty. These are treats that should be rationed,” she says.
In the quest for financial flexibility, don’t forget to stay healthy. Yes, there is a direct relationship between health and wealth.
As we all know, medical bills, especially if you seek treatment in the private sector, can be harrowingly expensive. So eat at least a fruit a day, exercise regularly, and take supplements if one has the means.
“Financial flexibility is extremely important. You never know when you may be struck by illness or when a setback happens. But if you have the financial means, you will be prepared to handle it. Similarly, when opportunity strikes, you will be ready to grab it,” says Voon.
By TEE LIN SAY
linsay@thestar.com.my
After more than a decade of frenzied borrowing, waste and extravagance, the developed countries saw their economies hitting rock bottom as foreclosures increased, debt levels skyrocketed and stock markets came tumbling down.
Much of this was due to over-leveraging and a lack of discipline with money. It was basically a case of people having lifestyles they could not afford. So how do we avoid this?
CTLA Financial Planners Sdn Bhd managing director Mike Lee says the starting point is to have a written budget.
Upon receiving salary, Lee says, one should list out the six compulsory items one needs to pay for. This can be insurance premium, home or car instalments, the children’s school fees, and other necessities.
“Once the compulsory items have been listed out, the second tier of expenditure is called the essential items. These are things like food, utilities, housing maintenance and telephone bills,” he says.
The last category of items in the budget are known as the desirables, and these encompass entertainment expenses such as hobbies, going for a movie, gifts for friends and travel costs.
Lee suggests that 20% of the salary (after tax and contribution to the Employees Provident Fund) be allocated for savings and investments.
“Once you have done all that, see how much is left. If there is anything extra, you can spend that money on whatever you want. However, if you earn RM5,000 and your total expenses come up to RM6,000, then cutbacks need to be made,” he advises.
The cutbacks will start with the desirable items. For instance, you may have to spend less on travel or hobbies. If there is still a deficit after this first round of cutbacks, you have to next look at the essential items. “You may want to eat less expensive food, for instance,” he says.
On other tips on cutting back on spending, NewAsia Capital associate director Sherilyn Foong says savings should be made a necessary monthly expense.
“While it may be difficult at first, a little bit of discipline in the initial months will certainly bear long-term fruits, especially when an opportunity for investment or a rainy day crops up.”
Foong, who has been in the financial services sector for several years, also believes that cash is king.
She is not against people borrowing to make good investments, but she thinks it is a bad idea to incur debt on credit card charges, shopping expenses and depreciating assets. To her, it is a no-no to allow such debts to take up a huge chunk of one’s salary.
“Buy with cash. Don’t spend money you don’t have. Avoid using the credit card, and opt instead for a debit card,” she advises.
Alan Voon, an expert on warrants who focuses on investor education, says the key to living within one’s means is to lead a financially responsible life.
“Manage your money wisely so that money does not manage you in return,” he says.
Says Foong: “You should lead a comfortable life. Yes, you can sometimes give yourself a treat and not be such a scrooge, but don’t overindulge either. Don’t spend money just to show off to your peers and to fool them into thinking you are richer than you actually are.”
Voon adds that saving money is important. “However, that alone is not enough because every year, inflation is eating up your wealth. So you need to invest some of your saving as well. Adhere to a long-term investment strategy. That is your only way to fight inflation,” he says.
Another easy way to avoid overspending, according to Foong, is to limit the trips to shopping malls and to not buy on impulse.
“You have a tendency to spend whether its on food, clothes, accessories or non-necessities when you’re at the mall. Once in a while it is okay, but doing it on a regular basis means digging deeper into the kitty. These are treats that should be rationed,” she says.
In the quest for financial flexibility, don’t forget to stay healthy. Yes, there is a direct relationship between health and wealth.
As we all know, medical bills, especially if you seek treatment in the private sector, can be harrowingly expensive. So eat at least a fruit a day, exercise regularly, and take supplements if one has the means.
“Financial flexibility is extremely important. You never know when you may be struck by illness or when a setback happens. But if you have the financial means, you will be prepared to handle it. Similarly, when opportunity strikes, you will be ready to grab it,” says Voon.
By TEE LIN SAY
linsay@thestar.com.my
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